Recorded RBI impact
Fine: Rs 2.50 Cr
Monetary penalty · Fresh imposition
Published by RBI
20 Oct 2023
Case Brief
The Reserve Bank of India imposed a monetary penalty of Rs 2.50 crore on L&T Finance Limited by order dated October 17, 2023. The penalty was levied for non-compliance with certain provisions of the RBI’s NBFC Directions, 2016. RBI’s inspection found that the company did not disclose risk gradation and the rationale for charging different interest rates to different categories of retail borrowers, failed to notify borrowers when it charged a higher penal interest rate than what had been communicated at sanction, and failed to notify borrowers of changes in loan terms and conditions when it charged an annualised interest rate higher than what was communicated at sanction. RBI stated that the action was based on deficiencies in regulatory compliance and did not pronounce on the validity of transactions or agreements with customers.
Why RBI Acted
RBI imposed a monetary penalty under Section 58G read with Section 58B(5)(aa) of the RBI Act, 1934 after inspection found non-compliance with provisions of the Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016. The inspection noted that the company did not disclose to retail borrowers the gradation of risk and rationale for charging different interest rates in the loan application/sanction letter, failed to notify borrowers about changes in penal interest rate when charging a higher rate than communicated at sanction, and failed to give notice of changes in terms and conditions of loan when charging an annualised rate of interest higher than communicated at sanction.
Operating Impact
L&T Finance must absorb the penalty and ensure future compliance with RBI’s NBFC directions on borrower disclosures, interest-rate communication, and notice of changes in loan terms. The action does not itself invalidate customer contracts, but it signals continued supervisory scrutiny over lending practices and customer communication.
Regulatory Basis
- clause (b) of sub-section (1) of Section 58G read with clause (aa) of sub-section (5) of Section 58B of the Reserve Bank of India Act, 1934
Action Facts
- Primary Impact
- Fine: Rs 2.50 Cr
- Order Date
- 17 Oct 2023
- Effective From
- 17 Oct 2023
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- NBFC